There are a variety of reasons why you might wish to cancel health insurance policy, but does your particular situation qualify? That is often a question that is asked by many around the nation, particularly when not in a period of open enrollment.
The Affordable Health Care Act has some pretty strict guidelines governing the cancel health insurance policy, but there are some ways to get around this. First of all, note that most private insurance policies can be canceled whenever you please, depending on the insurance documentation that you received when signing up.
For employer-sponsored plans, you will most likely want to see if you have a Qualifying Life Event that makes it possible to cancel health insurance policy, so let us go over those possibilities now.
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Qualifying Life Event Explained
One common reason to want to cancel health insurance policy is that you wish to test the market, so to speak. Cost comparison of policies is quite common, particularly in today’s era where premiums are once again creeping up. You might find that a private plan is cheaper than your existing employer-sponsored plan.
If that is the case, comparing policies and switching to another one outside the open enrollment period could potentially save you some money. The key is to be able to cancel that plan successfully, which is where the Qualifying Life Event clause of the Affordable Care Act comes into play.
As its name implies, a qualifying life event is the result of a noticeable and drastic change in your living situation that was not present during the open enrollment period. Examples of this commonly include marriage, the birth of a baby, or the loss of health coverage altogether.
Some of these qualifying life events will enable you to cancel your existing policy, even outside of the open enrollment period, and then work to reenroll under a new plan.
This is important because with the abundance of insurance providers available today, one policy might become more appealing over all others depending on changes in your life circumstance. This comparison could lead you to want to cancel your existing plan in deference for a different one.
Let us briefly go over the three most commonly qualifying life events that might allow you to cancel your existing policy. We will not discuss the loss of health coverage, a major Qualifying Life Event, as that would obviously not result in a need to cancel.
While there are many more Qualifying Life Event, the ones mentioned here are most commonly cited. What is important now is to determine how you can a use a Qualifying Life Event (QLE) to your advantage in the event that you want to cancel health insurance coverage and you are not inside the open enrollment window.
The Presence of Pre-Tax Health Insurance
Many employers today offer their employees insurance under a type of Section 125 cafeteria plan. This is done within existing IRS regulations that enable employers to actually purchase insurance policies for their employees on a pre-tax basis. This typically works to the benefit of the employee as well because it lowers the total taxable income.
However, it is important to remember that these plans cannot be canceled before an open enrollment plan begins unless a qualifying life event can be proven and justified.
This is because of the pre-tax status that has been granted to the insurance policy itself. Private plans do not have such a provision, and this is why they can typically be canceled at any time, even when the open enrollment window has long passed.
A Change in Household Structure
There are various reasons that might bring on this qualifying life event such as marriage or divorce, the birth or adoption of a child, or the unfortunate death of someone in the family that is on the policy.
Each of these qualifying life events will, in theory, permit you to compare other insurance policies out there that might be more applicable to your new situation. If that is the case, you should then have a case for canceling your existing policy and signing up for a new one, both outside of the open enrollment period.
Some policies will shift their premium amount depending on the zip code or county that you live in. If you do move and find that this is the case for you, this is a qualifying life event.
Other examples of this can include a student who is on the policy going away to college or returning home, seasonal workers who frequently change location in relation to their home and work, and moving into or out of a transitional housing situation.
Other Types of Qualifying Life Event
This is a broad category that includes various other types of life changes that might result in you being to invoke the Qualifying Life Event clause of your employer-sponsored plan.
This includes any change to your income that might impact the type of health coverage you actually for, becoming a member of a Native American Tribe that is federally recognized, gaining status under the Alaska Native Claims Settlement Act, gaining citizenship in the United States, being released from prison, and beginning or ending service in the AmeriCorps.
The Role of the Internal Revenue Service (IRS)
Keep in mind that the IRS is deeply involved in determining what qualifies as a Qualifying Life Event. In fact, it is their decision to make and not your employers. Technically this is because the IRS is the one granted the tax-free status in the first place, so they are hesitant to let any individual out of their existing health insurance policy without a justifiable reason to do so.
The request to change your status, thereby leading to your ability to cancel coverage outside of open enrollment, must be made within 60 days of the Qualifying Life Event. This is important to remember as the IRS typically will not grant any request made after this date.
In Process Cancel Health Insurance
Assuming you have a qualifying life event, the procedure to cancel your existing plan is rather straightforward. Remember, for private plans, you will want to contact the insurance provider directly. It is at this point that you will then want to begin to compare policies and premiums to determine which is the best fit for you and your family situation.
If you are under an employer-sponsored plan, you will need to begin the cancellation process by contacting someone in the company human resources department.
It is HR personnel who are typically authorized to be your representative to make any changes to your current health insurance coverage. To streamline the process, you will want to have complete documentation detailing your Qualifying Life Event.
If you were recently married, for example, you will have to provide HR with the marriage certificate. A divorce decree, birth certificate, or adoption papers will suffice for the other common types of life changes that result in a Qualifying Life Event.
Remember that you should not cancel a policy unless and until you have a suitable replacement ready to go. This is why it is important to compare health insurance providers when you have a change in y our life situation in order to determine the best option for you at the time.
If you go without insurance coverage, there will be a tax penalty assessed. That penalty is $325 plus an adjusted amount for inflation beginning in 2017, so do not cancel the policy until you are good and ready.
Get Covered Before You Cancel
It’s fine to cancel a policy when it no longer suits your needs, but don’t do so without having a new health insurance plan already lined up. The Affordable Care Act grants each individual two months without health insurance before they’ll be fined, but that time goes by a lot faster than you’d expect when you haven’t compared any rates.